SEC's Top Lawyer Sued in Madoff 'Clawback' Case

By

Chad Bray And

Jean Eaglesham

Updated Feb. 24, 2011 12:01 a.m. ET

The Securities and Exchange Commission on Wednesday moved to quash speculation that its top lawyer decided to step down because he is being sued as part of a "clawback" lawsuit by the trustee seeking to recover assets on behalf of victims of Bernard Madoff's fraud.

The surprise decision by David Becker to return to the private sector, announced at the start of this month, caused widespread speculation within the agency. "It stunned everyone—we're wondering what he knows that we don't," said one senior member of staff.

The lawsuit seeks to recover assets from the estate of Mr. Becker's mother, which allegedly received $1.54 million in fictitious profits from Mr. Madoff's firm.

"I was not involved with my parents' financial affairs, and don't remember knowing about any investment with Madoff until after my mother's death in 2004 and the subsequent liquidation of her account," Mr. Becker said in a statement on Wednesday. The SEC made a similar statement, through its spokesman, regarding Mr. Becker's involvement in his parents' financial affairs.

Mr. Becker and his brothers were co-executors on their mother's estate, according to the lawsuit. Their mother died in June 2004. The lawsuit doesn't allege Mr. Becker or his brothers had knowledge of the fraud.

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Mary Schapiro, the SEC chairman, said in a statement on February 6 announcing the resignation of Mr. Becker that she always "knew this was a two-year commitment." The two-year limit wasn't publicly disclosed when Mr. Becker was appointed in February 2009.

The exit of the 63-year-old Mr. Becker from the agency was the result of a commitment he had given to his wife and entirely unrelated to the Madoff action, according to a person familiar with the situation. The person said that Mr. Becker only learned last week that he was being sued by Madoff trustee Irving Picard.

The Becker lawsuit was filed in December, but not served until earlier this month, according to court records. It was reported late Tuesday by the New York Daily News on its website.

Mr. Becker joined the SEC in 1998 as deputy general counsel and was named general counsel in January 2000. He left the commission in 2002, serving as a partner at law firm Cleary Gottlieb Steen & Hamilton LLP until he rejoined the regulator in 2009.

The lawsuit comes as the SEC's repeated failure to stop the decades-long Madoff fraud continues to cast a shadow over the agency. Ms. Schapiro last year instigated a shake-up of the agency's leadership and enforcement function in response to criticism of multiple blunders by the SEC over its handling of the case, including failure to respond to a complaint by a whistleblower.

Republican lawmakers have recently cited the SEC's failures over Madoff as a reason to reject President Barack Obama's request for an increase in the agency's budget for the 2012 fiscal year.

"My concern is we have doubled the SEC's budget over the last nine years and yet at the same time we have had Madoff," Jo Ann Emerson (R., Mo.) said earlier this month.

But Harvey Pitt, a former SEC chairman, warned that the agency is being "set up to fail" by Congress. He said lawmakers had given the SEC significantly more responsibilities under the Dodd-Frank Act without funding that extra mandate. Mr. Pitt told a conference in New York last week that the Dodd-Frank requirement to offer six-figure rewards to encourage whistleblowing increased the risk the SEC would miss a future Madoff.

"You know in 10,000 complaints the likelihood is maybe two gems and 9,998 pieces of garbage - and this is true for the CFTC \[Commodity Futures Trading Commission\] as well," Mr. Pitt said.

Mr. Madoff is serving a 150-year prison sentence after admitting in 2009 to carrying out a decades-long fraud.

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